9.3 What the case study showed

9.3.1Ms Murphy’s claim

In his evidence in relation to Ms Murphy’s claim, Mr Storey accepted that:

  • Youi failed to handle Ms Murphy’s claim in an honest, fair and transparent manner, as required by clause 7.2 of the General Insurance Code of Practice;[1]
  • Youi failed to respond to the Broken Hill hail storm in an efficient, professional and practical way and in a compassionate manner, as required by clause 9.2 of the Code;[2] and
  • Youi breached its duty of utmost good faith to Ms Murphy.[3]

Despite these acknowledgments, Youi contended in its post-hearing submissions that none of the matters considered by the Commission in relation to Ms Murphy’s claim supported a finding that Youi may have engaged in misconduct or conduct falling below community standards and expectations.[4] That submission is contrary to the evidence, and must be rejected.

The key features of Youi’s handling of Ms Murphy’s claim may be summarised as follows. Youi selected a builder to undertake repairs at Ms Murphy’s property despite being aware of numerous complaints in relation to the builder. When Youi subsequently formed the view that the builder had broken the law, and that no new jobs should be allocated to the builder, Youi did not allocate Ms Murphy’s repairs to another builder. Nor did it tell Ms Murphy about these issues. A period of several months elapsed, during which no work was done at Ms Murphy’s property. When work commenced, the builders walked off the job, leaving Ms Murphy and her family in a house with no roof and no air-conditioning, which was not protected from lead dust. When Ms Murphy told Youi on 6 October 2017 about her situation, including that she was pregnant and being exposed to lead dust, Youi did nothing until 19 October 2017, when it attempted to arrange make safe works. Those make safe works did not occur. Youi took no steps to check that they had occurred, or that Ms Murphy and her family were safe. It was only on 20 October, after Ms Murphy complained again, that she and her family were placed in temporary accommodation. After that, they were required to return to a home that had not properly been made safe for them. As a result of the builder’s poor workmanship, further damage was done to the property when it rained. It was not until May 2018 that Ms Murphy’s roof was properly repaired.

Youi sought to contend that this conduct did not breach clause 7.2 of the General Insurance Code of Practice. Clause 7.2 provides thatWe will conduct claims handling in an honest, fair, transparent and timely manner, in accordance with this section. Youi argued that the requirement to conduct claims handling in atimelymanner requires nothing more than for it to comply with the particular timeframes set out in other provisions of clause 7 of the Code.[5] I disagree. Consistently with the view taken by the Insurance Council of Australia and the Code Governance Committee,[6] I consider that the requirement to handle claims in anhonest, fair, transparent and timely mannerhas a broader application, and is capable of being breached independently of the other provisions of clause 7 of the Code.

It is clear that Youi may have breached that duty in relation to its handling of Ms Murphy’s claim, and that it therefore may have engaged in misconduct. Among other things, it was not fair or transparent for Youi not to reallocate Ms Murphy’s repairs to another builder in circumstances where it knew about significant issues with Builder A and did not inform Ms Murphy of those issues. When Youi took no steps to enforce the timelines in its agreement with Builder A, despite Builder A’s failure to commence work within those timelines, it failed to handle the claim in a timely manner. When Ms Murphy told Youi on 6 October that she was pregnant and being exposed to lead dust because of Builder A’s failure to complete the repairs, it was not fair for Youi to leave her and her family in their housewithout a rooffor another two weeks before moving them into temporary accommodation.

For similar reasons, it is arguable that Youi may have breached its duty of utmost good faith to Ms Murphy, and therefore engaged in misconduct. As noted earlier in this chapter, the duty of utmost good faith may require an insurer to act, consistently with commercial standards of decency and fairness, with due regard to the interests of the insured.[7] Throughout its handling of Ms Murphy’s claim, as summarised above, there were a number of instances where Youi could be said to have failed to act with due regard to Ms Murphy’s interests.

On the basis of the evidence before the Commission, I am not in a position to draw conclusions about Youi’s response to the Broken Hill hail storm as a whole. However, I agree with Mr Storey that, at least in relation to its handling of Ms Murphy’s claim, Youi failed to respond to that catastrophe in a way that was efficient, professional, practical and compassionate.

I refer Youi’s conduct in connection with the duty of utmost good faith to ASIC, pursuant to paragraph (a) of the Commission’s Terms of Reference, for ASIC to consider what action it can and should take.

I consider that the matters referred to above that may constitute misconduct were attributable, at least in part, to the way in which Youi remunerated its claims handling staff. At the time of Ms Murphy’s claim, claims handling staff at Youi were responsible both for dealing with incoming claims and for managing existing claims. Mr Storey said that about 30% of the performance indicators for these staff related to dealing with new claims, and only 10% related to handling existing claims.[8] This combination of roles, and the emphasis on dealing with new claims, contributed to claims staff feeling unable to spend time on dealing with their larger, more difficult claims.[9] In August 2018, Youi introduced changes to address those issues.[10]

9.3.2Mr Sutton’s claim

In relation to Mr Sutton’s claim, Mr Storey accepted that:

  • Youi failed to handle Mr Sutton’s claim in an honest, fair and transparent manner, as required by clause 7.2 of the Code;[11]
  • Youi failed to respond to Tropical Cyclone Debbie in an efficient, professional and practical way and in a compassionate manner, as required by clause 9.2 of the Code;[12] and
  • Youi breached its duty of utmost good faith to Mr Sutton.[13]

Despite these acknowledgments, Youi contended in its post-hearing submissions that none of the matters considered by the Commission in relation to Mr Sutton’s claim supported a finding that Youi may have engaged in misconduct or in conduct falling below community standards and expectations.[14] Again, that submission is contrary to the evidence, and must be rejected.

Youi’s continuing failure to fix the tarpaulin over the hole in Mr Sutton’s roof, or find a more permanent way to keep water out of Mr Sutton’s house while repairs were taking place, was not professional or practical. Nor was it fair to Mr Sutton, in circumstances where Youi must have been aware that additional water entering Mr Sutton’s property was likely to cause damage to that property, and to cause mould to grow. Youi’s repeated delays in reimbursing Mr and Mrs Sutton for the cost of their temporary accommodation demonstrated a failure to deal with Mr and Mrs Sutton’s claim in a timely manner. They also were not fair to Mr and Mrs Sutton, as those delays in organising reimbursement repeatedly put Mr and Mrs Sutton under financial pressure. As Mr Storey acknowledged, the Code emphasises the importance of not leaving a customer in financial hardship.[15] While the delays in undertaking repairs to Mr Sutton’s property were attributable to a number of factors, they were, at least in part, indicative of a failure by Youi to handle Mr Sutton’s claim in an efficient or practical way, or in a timely manner.

Accordingly, I consider that, in relation to Mr Sutton’s claim, Youi may have breached its obligation under clause 7.2 of the Code, and therefore may have engaged in misconduct. While I am not in a position to draw conclusions about Youi’s response to Tropical Cyclone Debbie as a whole, I agree with Mr Storey that, at least in relation to its handling of Mr Sutton’s claim, Youi failed to respond to that catastrophe in a way that was efficient, professional, practical and compassionate. I also consider that it is arguable that Youi may have breached its duty of utmost good faith to Mr Sutton, and therefore engaged in misconduct. The evidence about Youi’s handling of Mr Sutton’s claimparticularly in relation to the make safe work and reimbursement for temporary accommodationindicates that Youi failed in a number of ways to act with due regard to the interests of the insured.

I refer Youi’s conduct in connection with the duty of utmost good faith to ASIC, pursuant to paragraph (a) of the Commission’s Terms of Reference, for ASIC to consider what action it can and should take.

9.3.3Effectiveness of mechanisms for response and redress

Youi’s handling of both Ms Murphy’s and Mr Sutton’s claims highlighted issues in relation to Youi’s IDR processes.

As noted above, Ms Murphy made a formal complaint to Youi on 2 November 2017, which was six pages long and raised a lengthy list of concerns.[16] In response to this complaint, a representative of Youi spoke to Ms Murphy’s partner on the phone, and then sent Ms Murphy a system-generated letter. This letter did not respond to the matters Ms Murphy had raised in her six-page complaint, did not explain how Youi had resolved that complaint, and did not set out Youi’s reasons for any decision that it made in relation to the complaint. The phone call between the Youi representative and Ms Murphy’s partner was not recorded, and the only available notes of that call were brief and inadequate.

Mr Storey accepted that Youi had failed to deal with Ms Murphy’s complaint in accordance with the requirements of clause 10.13 of the Code.[17] In its submissions, Youi accepted that its response to Ms Murphy’s complaint did not set out the matters required by clause 10.13 of the Code, but sought to argue that this did not constitute misconduct. Under the Commission’s Terms of Reference,misconductincludes conduct that breaches a recognised and widely adopted benchmark for conduct. I consider that clause 10.13 represents such a benchmark and that, by breaching it, Youi has engaged in misconduct. Youi’s submission to the contrary indicates a concerning failure to accord sufficient importance to the provisions of the Code dealing with the handling of disputes.

Youi’s failure to comply with those provisions in this case had the result that, if Ms Murphy had taken her complaint to EDR, there would have been no way of testing any subsequent account given by Youi of what was said in the conversation with Ms Murphy’s partner. The brief notes made by Youi of the telephone conversation were not adequate to allow that to occur. This state of affairs has the potential to undermine the effectiveness of EDR mechanisms, and underscores the importance of the requirement in the Code for general insurers to respond to complaints in writing.

In relation to the complaint made by Mr Sutton on 9 October 2017, the issue is presented even more starkly. Youi did not respond in writing to that complaint.[18] There is no record of how that complaint was resolved, or Youi’s reasons for any decision it made in relation to that complaint. In the absence of any record of a decision, it is difficult to see how Mr Sutton could have escalated his complaint to EDR. Mr Storey rightly accepted that Youi failed to deal with Mr Sutton’s complaint in accordance with the requirements of clause 10.13 of the Code.[19] Again, Youi’s conduct had the potential to undermine the effectiveness of EDR mechanisms.

9.3.4Conduct falling below community standards and expectations

Another matter addressed in Mr Storey’s evidence was the term in Youi’s home insurance policies that excluded from cover anyadditional costs resulting from your buildings or any part thereof not being compliant with the most recent building codes, laws and regulations.

Mr Storey accepted that it would be impractical and unreasonable for the average person to stay abreast of changes to the building code and upgrade their house accordingly. He said that it would not be economical for any homeowner to do this.[20] He also accepted that Youi does not enforce this term in practice, but instead determines whether to cover a policyholder for additional costs associated with bringing a property up to code by applying a set of guidelines that are not made available to policyholders.[21]

Mr Storey accepted that a Youi policyholder has no idea until after they make a claim and the damage is assessed whether or not he or she will be covered for these additional costs.[22] He accepted that this may not be satisfactory.[23] He also accepted that it might be possible for Youi to include a narrower exclusion in its home insurance policies, which reflected the circumstances in which the current exclusion is actually applied.[24] In its submissions, Youi contends that attempting to collate the variables and discretionary matters currently applied by assessors into a simple term within its policies might cause uncertainty and confusion in the minds of customers.[25] However, I consider that enforcing the current term by reference to criteria in internal guidelines, which are not made available to policyholders, is what is likely to cause uncertainty and confusion in the minds of customers.

No doubt it may be said that Youi’s policy of not relying on the strict terms of the policy works to the advantage of the insured. But I consider that the community would expect that the policy terms would explain clearly what is covered and what is not.


[1]Transcript, Jason Storey, 19 September 2018, 6234.

[2]Transcript, Jason Storey, 19 September 2018, 6234.

[3]Transcript, Jason Storey, 19 September 2018, 6191.

[4]Youi, Module 6 Case Study Submission, 23 [5].

[5]Youi, Module 6 Case Study Submission, 67 [17]–[18].

[6]Exhibit 6.404, Witness statement of Robert Whelan, 27 August 2018, Exhibit RW-33 [ICA.002.001.0538 at .0606–.0607].

[7]CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1 at 12 [15] (Gleeson CJ and Crennan J).

[8]Transcript, Jason Storey, 20 September 2018, 6268.

[9]Transcript, Jason Storey, 20 September 2018, 6269.

[10]Transcript, Jason Storey, 20 September 2018, 6270.

[11]Transcript, Jason Storey, 19 September 2018, 6236.

[12]Transcript, Jason Storey, 19 September 2018, 6236.

[13]Transcript, Jason Storey, 19 September 2018, 6236.

[14]Youi, Module 6 Case Study Submission, 12 [5].

[15]Transcript, Jason Storey, 19 September 2018, 6188.

[16]Exhibit 6.330, Witness statement of Sacha Murphy, 20 June 2018, 5 [34]; Transcript, Jason Storey, 19 September 2018, 6222.

[17]Transcript, Jason Storey, 19 September 2018, 6228.

[18]In its submissions, Youi referred to four brief follow-up emails sent to Mr Sutton after he made this complaint: Youi, Module 6 Case Study Submission, 14 [59]. Those emails were not tendered in evidence at the hearing, and Youi did not seek leave to tender them after the hearing. It is clear on the face of those emails that none of them constituted a written response to Mr Sutton’s complaint.

[19]Transcript, Jason Storey, 19 September 2018, 6245.

[20]Transcript, Jason Storey, 19 September 2018, 6196.

[21]Transcript, Jason Storey, 19 September 2018, 6197200.

[22]Transcript, Jason Storey, 19 September 2018, 6200.

[23]Transcript, Jason Storey, 19 September 2018, 6200.

[24]Transcript, Jason Storey, 19 September 2018, 6197.

[25]Youi, Module 6 Case Study Submission, 18 [77].